Hedge funds cut positions to ’09 low as Goldman says buy

Funds are dumping commodities as increasing supply outweighs the improving economic outlook that sent the Dow Jones Industrial Average to a record high last week. The 120-day correlation between the S&P GSCI and the MSCI All-Country World Index has weakened to 0.47, from 0.72 in June, data compiled by Bloomberg show.

Crude-oil stockpiles in the U.S., the biggest consumer, are at the highest level since the end of June, a government report showed March 6. Copper supplies monitored by exchanges in New York, London and Shanghai have jumped to the highest since December 2003. Global inventories of wheat and soybeans will be higher than forecast a month earlier, the U.S. Department of Agriculture said March 8.

The slump in raw materials is “overdone” and prices will rebound in the next three months as China’s economy accelerates, Jeffrey Currie, Goldman’s head of commodities research in New York, said in the March 7 report. Copper will increase 16% to $9,000 a metric ton in six months, the bank said.

China GDP

China maintained its expansion target at 7.5% for 2013 and spending will rise to “maintain support for economic growth,” Premier Wen Jiabao said March 5. The country plans to open 5,200 kilometers (3,232 miles) of new railway lines and build 80,000 kilometers of highways, a report from the National Development and Reform Commission showed the same day. Urbanization will boost the nation’s metals demand, Jiangxi Copper Co., China’s largest producer, said last week.

Payrolls in the U.S. rose 236,000 last month, Labor Department figures showed. The median forecast of 90 economists surveyed by Bloomberg projected an advance of 165,000. The jobless rate dropped to 7.7%, the lowest since December 2008. The U.S., the biggest economy, consumes the most corn and is the biggest metals user after China.

Build Positions

“We do see demand coming back for commodities as the U.S., China and other emerging markets are showing signs of acceleration,” said Rob Haworth, a senior investment strategist at U.S. Bank Wealth Management in Seattle, which oversees about $110 billion of assets. “This is a good time to build commodity positions as a demand boost may help perk up prices.”

Fund managers pulled $990 million from commodity funds in the week to March 6, according to Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR. Outflows from gold and precious-metals funds totaled $1.12 billion, he said. Holdings in exchange-traded products backed by gold contracted a record 106.2 tons last month, and another 21.9 tons in March, data compiled by Bloomberg show.

Bets on declining copper prices more than doubled to a net- short position of 16,391 futures and options, the CFTC data show. That’s the most negative outlook since March 2009. Traders are the most bullish in five weeks, with 13 analysts surveyed by Bloomberg expecting prices to rise this week. Four forecast declines and three were neutral, the highest proportion of bulls since Feb. 1.